To help market the properties, real estate agents from all over Malaysia were put on Danaharta's panel to help out. The agents offered Danaharta the nationwide presence that was impossible with the minimalist set-up of Danaharta's property division. Through the agents, Danaharta could take the properties to buyers all over Malaysia and overseas as well without having to establish branch offices and add more staff. Danaharta also worked out an aggressive selling strategy that included a variety of print and audio advertisements to promote its property tenders. Much time was spent brainstorming to produce well laid-out brochures, which had details of the properties on offer. This was a first for the property market. Never before had foreclosed properties offered in a tender been accorded the same amount of attention to detail that newly-launched properties were regularly given.
The whole bidding process was also designed to be buyer-friendly and transparent. To bid for the properties, members of the public could obtain from Danaharta, or the real estate agents, brochures featuring key information about the properties, and purchase a tender package for the property that they were interested in. The tender package contained a copy of the latest valuation report on the property, a copy of the sale & purchase agreement, and the terms & conditions of the sale. Guided by this information, the prospective buyers could then submit bids for the properties. Real estate agents provided their services free to potential buyers, as they would be paid by Danaharta from the sale proceeds.
At the close of each tender, all the bids received were collated by a Tender Committee comprising senior Danaharta management officials who were not involved in organising and managing the tender process. This was done in the presence of external auditors. The winning bids were later presented to the Tender Board for its approval. The Tender Board was made up of two Danaharta representatives (including the Managing Director), a representative of the Foreign Investment Committee, and a valuer. Once the bids were approved, all bidders were notified in writing of the success or failure of their bids.
Footnote 1
Loans collateralised by property accounted for 43% of Danaharta's NPL portfolio as at the end of 1999. Another 20% of the NPLs were secured by shares while the remaining 37% were unsecured.
The agency fees combined with other marketing costs like media advertisements and promotions meant that Danaharta paid out in total about 5% of the sale proceeds to secure sales of these properties. Nevertheless, Danaharta felt that the cost was justified. Given the “difficult portfolio”, Danaharta had no choice but to commit a higher percentage for advertising and marketing expenses to sell the properties.
B U Y E R I N C E N T I V E S
Danaharta made all efforts to make the tender as buyer-friendly as possible and buyers were offered all sorts of incentives to purchase from Danaharta.
The service provided by real estate agents to potential bidders was one of a number of incentives offered by Danaharta. The real estate agents provided free value-added service, performing inspection work, working out yields and comparative values for potential clients, in the hope of a successful bid for their client.
Buyers were given a stamp-duty waiver for all properties bought from Danaharta, whether through tenders or privately negotiated sales. The waiver could translate to significant savings for buyers. Apart from that, Danaharta also gave buyers vendor end-financing at prevailing competitive commercial rates2and promised vacant possession of the property3.
All properties were promised free of encumbrances to the buyers within nine months of the signing of the sale and purchase agreement. Failing which, the buyer could terminate the sale.
P R O P E R T Y S A L E R E S U L T S
Properties that were not sold in its first attempt through tender would be reoffered either in subsequent tenders or through private negotiated sales held in between tenders. Marketing efforts were ongoing to ensure that as many of the properties as possible were sold.
By 30 September 2005, Danaharta had held as many as 25 tenders - 10 major tenders and 15 smaller ones. In total, 1,298 properties worth RM3.70 billion were offered to the market. Of this, a total of 1,026 properties, comprising 79% of the total offered, had been sold for RM2.17 billion.
PROPERTY SALES
Of the 272 unsold properties, 88 had been transferred to Danaharta as part of its closure plan. The transfer was to facilitate a conversion process, i.e. to transfer the ownership of the unsold properties from the borrowers to Danaharta to smoothen the eventual hand-over of the properties to the Minister of Finance Inc, Danaharta’s shareholder, upon Danaharta's closure. A total of 87 properties had been withdrawn from sale due to redemption by borrowers or legal issues.
The remaining 97 properties were not transferred to Danaharta as these were mostly Malay reserve land. Some other types of properties such as hotels, abandoned projects and tenanted shopping complexes were also not transferred. For these properties, the ownership remain with the borrowers until they are sold.
Total offered to the market 1,298 3,702.51 n/a n/a
Total unsold properties 272 1,304.07 n/a n/a
Total sold 1,026 2,362.44 2,170.76 92%
Footnote 2
For the first seven property tenders only. The financing was also subject to buyers' credit standing.
Footnote 3
This was an advantage which was not available to court auction properties. Vacant possession was promised for all property types in Danaharta's sales except categories of property where it was impossible to guarantee vacant possession - shopping complexes, hotels, abandoned property projects and empty land.
In general, the securities were categorised into irredeemable, redeemable and convertible securities: • Irredeemable securities
The two classes of securities in this category were ordinary shares and irredeemable convertible loan stocks (ICULS). Danaharta would only dispose of these securities if the share price exceeded the pre-determined target price based on Danaharta's fundamental analysis of the securities. Danaharta's policy for the sale of shares was to sell controlling blocks through a tender exercise and non-controlling blocks through the market.
• Redeemable securities
This category included both secured and unsecured loan stocks as well as preference shares. Danaharta would only dispose of these securities if the price exceeded the pre-determined target price based on Danaharta's analysis of the credit risks against the yield to maturity of the securities. If the target price was not met, Danaharta would depend on redemption of the securities as a means to exit from these securities.
• Convertible securities
These were generally redeemable securities such as loan stocks and preference shares which might be converted into equity shares. The management of these securities would be mainly similar to that of redeemable securities, up to the point where the price of the ordinary shares exceeded the redemption sum of the instrument. From that point onwards, any decision to sell would be similar to that for ordinary shares, i.e. when the price exceeded the target price set by Danaharta based on fundamental analysis.
MANAGEMENT OF SECURITIES
• Stockbrokers, in accordance with market rules of the Bursa Malaysia where the securities are listed and normally traded through the Bursa Malaysia; and • Financial institutions, where sales would follow normal trade practices for
marketable instruments (relating mainly to securities that were not listed or normally traded through the Bursa Malaysia).
• However, where the securities were subject to call and put options, the decision to dispose the securities would be governed by the call and put option agreements. In situations where there was a breach of the agreement, the decision to dispose would be based on the type of security as explained above.
normally create a trust to hold the underlying assets as security for the investors. The asset - backed securities (ABS) are redeemed based on the primary strength of the assets in the pool, but may be supported by "credit enhancements" provided by the originator or organised through external parties.
M A I N F E A T U R E S O F S E C U R I T I S A T I O N